Canadian Banks May Report First Earnings Decline in Five Years

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ASusilovic

Royal Bank of Canada, Bank of Montreal and their four biggest domestic rivals may report debt writedowns totaling C$1.9 billion ($1.93 billion), contributing to the industry's first earnings drop in five years.

Fourth-quarter profits at Canada's largest banks probably fell by an average 6 percent, hurt by slumps in the Canadian and U.S. fixed-income markets, according to Desjardins Securities Inc. analyst Michael Goldberg in Toronto. Royal Bank and Toronto-Dominion Bank may be the only ones to post higher operating profit for the quarter ended Oct. 31, Goldberg said in a note to clients yesterday.

The results may be the industry's worst since the third quarter of 2002, Scotia Capital analyst Kevin Choquette estimates. Canadian bank shares fell by an average 11 percent in 2007, the biggest decline in five years, on concern about credit-market losses.

``More writedowns are coming in 2008,'' said Darko Mihelic, an analyst at CIBC World Markets, who has ``sector outperform'' recommendations on Bank of Montreal and Bank of Nova Scotia, and ``sector perform'' ratings on National Bank of Canada, Royal Bank and Toronto-Dominion.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSGKaMevaKro&refer=home

Cool, Meredith Whitney´s collegue expecting more write downs for Canadian banks....:p
 
Peanuts. These writedowns are dwarfed by Canadian banks' assets and profits; Canadian banks don't have significant exposure to the subprime fiasco. Canadian banks are generally much more conservative than U.S. banks. In the U.S. there may be 100's of bank failures every year; in its entire history Canada has only had 3 bank failures - one medium-sized bank in 1923 and two small, regional banks in the 80's.

Canadian banks have been globalizing to some extent in the past 20 years so that they have some exposure to the riskier banking styles of other countries, but their traditional strict management makes them amongst the safest in the world in the banking sector.

If a major Canadian bank were to fail it would have huge implications for the world banking business because a Canadian bank could only fail in a chaotic global economy.
 
Quote from ASusilovic:

You mean the kind of "traditional" strict [risk] management Bear Stearns applied ?...:)
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Its not so much strict risk management as it is that they are in a oligopoly supported by the Canadian Government. You don't have to take large risks when you don't have much competition. CIBC is probably the biggest risk taker of the big five.
 
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